What is National Pension System(NPS)
National Pension System(NPS) got popular after Govt of India opened contribution to NPS for all Indian citizen in 2009. As the name suggest National Pension System(NPS) is a investment option which offers excellent opportunity for investment which is targeted for retirement.
National Pension System(NPS) is an easily accessible, low cost, tax-efficient, flexible and portable retirement savings account. Under the NPS, the individual contributes to his retirement account. NPS is designed on Defined contribution basis wherein the subscriber contributes to his own account.
What are the features National Pension System / NPS account?
The following are the most prominent features of the retirement account under National Pension System(NPS):
- Every individual subscriber is issued a Permanent Retirement Account Number (PRAN) card which has a 12 digit unique number.
- Under NPS account, two sub-accounts – Tier I & II are provided. Tier I account is mandatory and the subscriber has option to opt for Tier II account. The following are the features of these sub-accounts:
Tier-I account: This is a permanent retirement account where under which the subscribers have to mandatorily contribute to NPS. Subscribers can withdraw up to 25% of their investment as per exit rules.
Tier-II account: This is a voluntary account which doesn’t have any lock-in. Subscribers of this account can invest and withdraw at any point in time.
Can I have more than one NPS account?
No, multiple NPS accounts for a single individual are not allowed. There is no need of opening multiple NPS accounts as NPS accounts are portable via the PRAN.
What are the Eligibility criteria for NPS account?
NPS accounts can only be opened by Indian citizens including the NRIs aged between 18 to 65 years.
How and where can I open a NPS account?
You can create your National Pension System(NPS) account in 2 ways
- Via POP – Points of Presence
- Via Online
Via Points of Presence (POP)
NPS is distributed through authorized entities called Points of Presence (POP). Almost all the banks (both private and public sector) in India act as Point of Presence under NPS. To invest in NPS, you are required to open an NPS account through a POP bank, preferably where you have your NRI account. You can send your NPS application form to your Bank for opening of the NPS account.
You can easily create an NPS account online in 10-20 mins. You can refer to How to fill NPS form online? for step by step guide on how to create NPS account online.
How to check the status of my PRAN?
If you have applied for NPS then you can check status of you PRAN(Permanent Retirement Account Number) by logging into https://cra-nsdl.com/CRA/ using the 17 digit receipt number provided by POP-SP or the acknowledgement number.
Once the PRAN is generated, an email alert as well as a SMS alert will be sent to the registered email ID and mobile number of the subscriber.
What are the documents required for opening a NPS account?
The following documents need to be submitted to your Bank (POP) for opening of a NPS account:
- Completely filled in subscriber registration form
- Copy of Passport
- Proof of Address, if the local address is different from the address in your passport.
Can I appoint nominees for the NPS Tier I and Tier II Account?
Yes, you need to appoint a nominee at the time of opening of a NPS account in the prescribed section of the registration form. You can appoint up to three nominees in your NPS Tier I and NPS Tier II account.
If you have more than 1 nominee then you are required to specify the percentage of share, which should not be in decimals that you wish to allocate to each nominee. The share percentage across all nominees should collectively aggregate to 100%.
Can Nominee be added after the NPS account is created?
If you have not made the nomination to your NPS account at the time of registration, you can do the same after the allotment of PRAN. You will have to visit your PoP and place Service Request to update nominations details. Or you can login to your NPS account online to update nomination details.
What is the minimum contribution for NPS?
The minimum contribution for National Pension System(NPS) depends on the NPS tier.
How are the funds managed under NPS?
When you invest in National Pension System(NPS) , you need to select a pension fund manager which will manage your NPS fund on behalf of you. It’s like selecting a mutual fund manager for your retirement savings!
At present there are eight Pension Fund Managers who manage the funds at the option of the subscriber.
They are as follows:
- ICICI Prudential Pension Funds Management Company Limited
- LIC Pension Fund Ltd
- Kotak Mahindra Pension Fund Ltd
- Reliance Capital Pension Fund Ltd
- SBI Pension Fund Pvt Ltd
- UTI Retirement Solutions Ltd
- HDFC Pension Management Company
- Pension fund to be incorporated by Birla Sun Life Insurance company limited
You can check their performance here – Best NPS fund manager in 2020 for Tier-1
What are the different Fund Management Schemes available for NPS?
The National Pension System(NPS) offers two approaches to invest subscriber’s money:
Active choice – Here the individual would decide on the asset classes in which the contributed funds are to be invested and their respective proportions (Asset class E maximum of 50%, Asset Class C, and Asset Class G )
Auto choice – Life cycle Fund- This is the default option under NPS and wherein the management of investment of funds is done automatically based on the age profile of the subscriber.
As the age of the subscriber progresses, the exposure of the fund to Equity (E) and Corporate Debt (C) is reduced and enhanced in Government securities as a risk protection measure.
Choose the best fund by evaluating – Best NPS fund manager in 2020 for Tier-1
Is it possible to switch investment schemes and fund managers in NPS?
Yes you can easily switch between different schemes like Asset class E, Asset Class C, and Asset Class G. Also you will be able to switch fund managers at any point in time for your NPS account.
You can easily change them by logging into your NPS account online or by visiting your POP branch.
Tax benefits for NPS
What income tax reliefs are available for NPS?
Tax benefit for contributing to National Pension System(NPS):-
Eligible for tax deduction up to 10 % of gross income earned from Indian sources under Sec 80 CCD(1) with in the overall ceiling of Rs. 1.5 lac under Sec 80 CCE of IT Act, 1961.
Additional Tax benefit w.e.f 2015-16
From F.Y. 2015-16, subscriber are allowed extra tax deduction in addition to the deduction allowed under Sec. 80CCD(1) for additional contribution in his NPS account subject to maximum of Rs. 50,000/- under sec. 80CCD 1(B) of IT Act, 1961.
NPS Withdrawal rules
what are the NPS withdrawal rules when the subscriber reaches 60 years?
When you attain 60 years of age then – At least 40% of the accumulated pension wealth of the subscriber needs to be utilized for purchase of an annuity providing for the monthly pension of the subscriber and the balance is paid as a lump sum payment to the subscriber.
In case, the accumulated pension wealth is equal to or less than a sum of two lakh rupees, the subscribers have the option to withdraw the entire accumulated pension wealth without purchasing any annuity.
What happens to my NPS account if I do not want to continue investing in it?
You can only prematurely withdraw your NPS contribution if you have contributed to NPS for 10 years! If you have contributed for 10 years then you will be mandatorily be asked to take annuity option for 80% of your investment and rest 20% you can withdraw in lump sum.
What happens to NPS account in case of subscribers death?
in the event of death of the NPS subscriber, the entire accumulated amount of NPS is paid to the nominee/nominees of the subscriber. If there is no nominee then amount is paid to the legal heirs.
Partial Withdrawal under NPS
Are partial withdrawals allowed under NPS?
Yes, partial withdrawals are allowed under National Pension System(NPS).
You can only partially withdraw your NPS contribution if you have contributed to NPS for at least 10 years, you will be mandatorily be asked to take annuity option for 80% of your investment and rest 20% you can withdraw in lump sum.
What are NPS partial withdrawal rules?
You can do partial withdrawal of National Pension System(NPS) only in below scenarios :-
– For the purpose of higher education of his/her children,
– For marriage of his/her children,
– For purchase or construction of residential house or flat
– For treatment of specified illnesses.
How many partial withdrawals are allowed in NPS?
You can do only 3 partial withdrawals for NPS account in the entire tenure.
Annuity under NPS
What is an annuity in NPS?
Simply annuity means, your money will be invested in instruments which will give you monthly/quarterly/yearly fixed returns on your investments
What are the different types of annuities available for NPS?
The following are the generic annuities that are offered by Annuity Service Providers to the subscribers of National Pension System(NPS) –
1. Pension (Annuity) payable for life at a uniform rate to the annuitant only.
2. Pension (Annuity) payable for 5, 10, 15 or 20 years certain and thereafter as long as you are alive.
3. Pension (Annuity) for life with return of purchase price on death of the annuitant (Policyholder).
4. Pension (Annuity) payable for life increasing at a simple rate of 3% p.a.
5. Pension (Annuity) for life with a provision of 50% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
6. Pension (Annuity) for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on death of the annuitant.
7. Pension (Annuity) for life with a provision of 100% of the annuity payable to spouse during his/her lifetime on death of the annuitant and with return of purchase price on death of the spouse. If the spouse predeceases the annuitant, payment of annuity will cease after the death of the annuitant and purchase price is paid to the nominee.
For latest updated on NPS please visit https://npscra.nsdl.co.in/